Lloyds

We are now entering the year of the dragon, the rainforest, the co-op, the Olympics, the Jubilee, the year of culture and what-the-Dickens-else – yes him, too.

The Chinese New Year begins on 23 January, the start of the new lunar calendar. As part of the 12-year cycle of animals, it is the dragon’s turn. Which means, apparently, that it is going to be either a quiet year or a year of catastrophe – a flood or earthquake or great political change.

Certainly, the era of “Who and When” is about to change. President Hu Jintao and prime minister Wen Jiabao are due to hand over to the next generation of Chinese dictators. Vice-president Xi Jinping is the favoured son at the moment, but it seems that ultimate power in China is passing from a small cabal of leaders to a wider constituency of around 400 top Communist Party apparatchiks. We live in interesting times.

And so to the rainforest. This is a campaign run by the Royal Society for the Protection of Birds. It seems, though, that the society is a little late, not just to save the rainforest but to catch up with the United Nations’ year of the forest, which was last year. Curiously, the RSPB is concentrating on East Africa and Indonesia and is rather ignoring the problems of deforestation in Pakistan and the Amazon basin, not to mention Scotland. We cut down our native forest years ago and even now we are struggling to increase our tree cover from 17 per cent to the target of 25 per cent.

But saving the tropical rainforest would certainly be a good thing. Around a billion people depend on it for their livelihood, as well as 70 per cent of the world’s species of land plants and animals.

The UN itself has moved on to the year of the co-operative. My Co-op store down the road will certainly be glad to hear this. So will my bank, which is in the process of taking over the good bits of Lloyds. The UN tells us there are over 800 million members of co-operatives in 100 countries, mostly in farming and retail. In the USA, the land of free enterprise, there are 29,000 co-operative businesses. In the UK, there are 5,450. And this month a new law comes into effect which eases the restrictions on membership and shareholdings. In these hard times, when capitalism is stumbling, the co-operative movement may be the job-creator we are all looking for.

The Olympics will certainly be a job-creator. There are 7,000 people currently working on the various construction sites and up to 100,000 temporary jobs are expected to be created in staging the games. And it is hoped the redevelopment of the Olympic areas of London will lead to 10,000 permanent jobs.

Goodness knows how many jobs will be created by the Queen’s diamond jubilee as pageants are staged, cities spruce themselves up for royal visits and new forests are planned. It is hoped that six million trees will be planted, in diamond jubilee woods, each at least 60 acres in size. One of them, in Leicestershire, is to be 460 acres.

Here in Scotland, the government has announced that 2012 will be a year of “culture”. The highlights begin with Celtic Connections, which will see over 2,000 singers swarm into Glasgow later this month. There is then to be a Festival of Visual Art, also in Glasgow, in April. On midsummer’s night, the Simón Bolivar Symphony Orchestra from Venezuela will perform in the open air at Stirling Castle.

Then, as the nights darken in August, Edinburgh will stage a “Speed of Light” show in which hundreds of runners, with lights attached, will sprint around Arthur’s Seat. It will be Scotland’s answer to the Olympic Games, reminding people that the next big event will be the Commonwealth Games in Glasgow in 2014. August will also see the 65th Edinburgh Festival, the greatest show on earth.

All this, of course, takes place against a black economic curtain. It is a most suitable year to be remembering the 200th anniversary of the birth of Charles Dickens. We are living in hard times, our great expectations have been dashed. Money has corrupted us, uncaring capitalism has brought us to this bleak house. We must now all live most ’umbly. Only love and the simple life remain. We must all live like the blacksmith Joe or Barnaby’s dear old mother and hope that 2012 will be the year of Something-Turning-Up.

The Royal Bank of Scotland, which is 84 per cent owned by the UK taxpayer, has become the latest to fall victim to the Greek debt crisis.

RBS reported a half-year loss this morning after writing down £733m of Greek government bonds. The bank had lent money to the Greek government and now acknowledges, like many other European banks, that the money may now not be paid back in full.

RBS reported after-tax losses of £1.4bn for the six months to 30 June. Like Lloyds yesterday, it has also had to make provision to cover claims for the mis-selling of Payment Protection Insurance (PPI). RBS allocated £850m for this, compared with the £3.2bn Lloyds said in May it was putting aside to cover issues with PPI.

RBS is the latest European bank to be hit by the ongoing financial crisis. In France, the Société Générale has already issued a profits warning, having seen a dramatic fall in its profits for the quarter to €747m (£652m), down 31 per cent from this time last year.

The largest French bank, BNP Paribas, had said it has set aside €534m over the Greek rescue plan, while Crédit Agricole confirmed that the crisis could hit its to second-quarter results by €850m (£738m) when it reports second-quarter results shortly.

Italy’s biggest bank, UniCredit, reported that it wrote down €105m (£93m) on its portfolio of Greek bonds. In Belgium, Dexia reported that it had been affected by its Greek exposure to the value of €377m (£327m). The bank has acknowledged that it holds €1.8bn in Greek government bonds.

In Germany, Deutsche Bank has written down its assets by €155m (£135m) over its exposure to Greek government bonds. And analysts expect Commerzbank to write down more than €700m (£608m) of Greek sovereign debt when the bank reports its the second quarter results next week.

Speaking this morning, the chief executive of RBS, Stephen Hester, urged markets to “stay calm in the face of turbulence”, adding that “we should be calm but we need to be purposeful. We are at a serious point in the markets and serious point in the growth cycle.”

The change in the bank’s fortunes is already having an impact on the taxpayer. The British government’s stake in RBS is massive after it spent £45bn to prop up the bank. This time last year, RBS shares were trading at just over 51p, giving the taxpayer a reasonable paper profit. But this morning, the share price dropped to under 26p, turning that profit into a substantial paper loss.

This follows a similar pattern yesterday with Lloyds. Its shares had to be suspended in early trading after falling more than 10 per cent. The UK government’s 41 per cent stake had been worth around £11bn but the dramatic fall in the share price meant that its value had dropped to £9.67bn, a loss on the day of about £1.1bn. The share price recovered somewhat this morning – but only to about 35p.

Lloyds chief executive, Antonio Horta-Osorio, had called the group’s performance “resilient”, adding that he thought it had made “substantial progress” since the start of the year. At least the bank has limited exposure to the struggling Eurozone countries. Its exposure to the five PIIGS states, (Portugal, Italy, Ireland, Greece and Spain), plus Belgium, totalled £189m.

Despite the turmoil in the banking sector, the British Bankers’ Association (BBA) has insisted that the banks were “on track” to meet their overall lending commitments despite what it claimed were difficult economic conditions. The BBA said that the five key UK banks had delivered £100.4bn in new lending to UK businesses during the first half of the year, including £37.4bn to SMEs (small and medium enterprises).

In a statement released this morning, the BBA said that “The banks’ efforts to encourage customers to come forward with borrowing proposals are set against the overall economic environment which remains challenging and business demand for credit which remains weak.”

The Scottish Council for Voluntary Organisations has launched a people’s petition calling on Lloyds Banking Group to reverse its decision to end its funding to the Lloyds TSB Foundation for Scotland.
It says that charities and community groups from across the country have joined forces over the campaign, arguing that the foundation is facing an uncertain future after the group ended the agreement that guarantees it a share of the bank’s pre-tax profits.
The petitioners claim the bank decided to reduce the proportion of its annual pre-tax profits it awards to its four UK foundations from 1 per cent to 0.5 per cent. The bank cited financial pressures as a result of the recession, and set out plans to appoint senior bank staff as trustees.
The terms were rejected by trustees at the Lloyds TSB Foundation for Scotland. But they were accepted by the other three foundations south of the Border. The bank subsequently told the Scottish foundation it would not receive any more funding after its current covenant expires.

Martin Sime, chief executive of the SCVO, described the decision as “a cynical one, putting the interests of this taxpayer-funded bank before the needs of communities across Scotland”.

In a letter to Sir Win Bischoff, chairman of the Lloyds Banking Group, the SCVO’s convener explained that the organisations that depend on funding from the foundation are already facing serious difficulties. “Increased demand for their services coupled with falling income from both the public sector and private donors means that many will have to cut services or close altogether. Lloyds Banking Group’s decision to terminate the covenant with the foundation puts the interests of the bank before the needs of people and communities across Scotland.”

However, a spokesman for Lloyds Banking Group said that the Scottish Foundation had refused to sit at the negotiating table. Those from England and Wales, Northern Ireland and the Channel Islands had done so and all had accepted the bank’s terms.
He explained that, under the existing covenant, the various foundations should not have received anything, since “we weren’t actually making any profit”. But he added that the group was now a much bigger entity and that even the reduced share of future profits should mean than the foundations receive more than they previously had.
The bank also issued a statement in which it said that “our door remains open” to the Scottish Foundation and that the settlement “would ensure that charities in Scotland receive a stable, secure and growing level of grants which is especially important at a time when charities across the UK face severe funding pressure.”

It went on to confirm that, in the absence of an agreement with the foundation, the bank was establishing an independent Bank of Scotland Foundation which would, in time, become its sole community investment vehicle north of the Border.

The petition was launched on the day Lloyds’ chairman told its AGM that it expects “good earnings momentum over the next years”. The bank returned to profit in the first quarter of the year and was well-positioned for growth as it continues to absorb HBOS, which it bought two years ago.

Whatever the future holds for Rangers, this tumultuous time in the club’s history will accumulate significance. Mostly, this will come from the change in ownership that is the only conceivable solution to the austerity and financial consternation that currently resides in the Ibrox boardroom. But then another distinction, something that is too readily lost to the great uncertainty of the present, will also endure.

It is the ability of Walter Smith to master the oldest and most meaningful of all a manager’s obligations: building a team that, regardless of the circumstances, accepts only its own sense of destiny. Smith constructs winning sides, whatever the players he has to hand, and few other managers would surely have operated with such calm authority so that Rangers have kept winning trophies – that most blatant of their supporters’ demands – despite the club’s insecurity.

It was Smith who introduced into the public domain the influence Rangers’ bankers, Lloyds, have in the running of the club as they try to recoup their debt. In the meantime, and despite being unable to sign a player for three transfer windows while reducing the size of his squad, he has continued to gather trophies.

Smith returned to Ibrox in January 2007, when the league title was already beyond Rangers’ grasp, and since then has won four of the six domestic prizes available, as well as guiding the club to their first European final for 36 years. Now, along with the rest of his coaching staff, he is working without a contract, and he cannot be certain that a new owner, when they eventually arrive, will keep him at the helm.

Yet, as the history of the club is added to, perhaps only Bill Struth, Scott Symon and Willie Waddell could be said to have been more crucial influences.

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